Sponsor Statment for HB 306

An Act Relating to the Real Estate Surety Fund

By Representatives Rokeberg and Ryan

House Bill 306 would amend the current language concerning the real estate surety fund so that the only expenses which may be paid for out of this fund are those associated with investigation and holding hearings regarding claims against the surety fund.

The real estate surety fund is composed of collections from real estate licensees. The licensees, when obtaining or renewing a real estate license, pay to the state a fee, not to exceed $125, in place of obtaining a corporate surety bond. Individuals who have claims against a licensee may file complaints with the Real Estate Commission and if those claims are upheld, the award may be paid out of the surety fund. The fund is currently capped at $500,000; however, anything above $250,000 may also be used for educational purposes. The surety fund fee may be adjusted according to the amount in the fund and how close the fund is to its cap; however, the fee may not exceed $125 per licensee. The reimbursement from the real estate surety fund may not exceed $10,000 per transaction. As directed by OMB and approved by the Legislature, $100,000 of the fund is earmarked to pay any awarded claims.

The Real Estate Commission ("Commission"), under current law, has the ability to expend funds over the $250,000 mark on educational purposes such as real estate clinics, meetings, courses, or institutes. AS 08.88.091 gives the Commission the authority to do these educational matters as well as publish informational materials, such as the quarterly newsletter the Commission currently publishes.

The real estate licensees pay to attend educational classes and pay into the surety fund. Thus, when the surety fund is expended for educational purposes, the licensee is paying twice for an educational item. This bill would delete the ability of the Commission to expend funds from the real estate surety fund for educational purposes. During FY ‘98, funds from the surety fund will be used to pay for: a permanent full-time publications specialist; funding for the Executive Administrator on surety fund related matters; travel for the publications specialist to attend national and Commission meetings; printing and mailing of the quarterly newsletter; professional education for the public, licensees, staff, and Commission members; purchase of an electronic camera for the newsletter and presentations; and supplies for training and office work.

Real estate licensees are required to take continuing education courses, as well as prelicensing courses. Most pay for these courses without complaint as they enhance their competency and benefit the licensee and consumers. However, under our current Alaska statutes, Occupational Licensing must assess the full cost of administrating every license. In July of 1997, Occupational Licensing proposed a biennial licensing fee of $375 vs. $165, plus the additional assessment of $125 for the surety fund. Due to the large number of complaints, the Real Estate Commission recommended at their September 1997 meeting a lower fee of $280 for the biennial license and $100 for the surety fund. The increase in the licensing fee was due to the use of additional department investigative personnel to reduce the backlog of complaints and other things including higher actual expenses than projected, fewer licensees than anticipated, and fewer hours of education courses submitted for approval all of which caused less revenue than anticipated.

Also included in the licensing fee was an allocation of a portion of the cost of the Commissioner’s Office – a practice which was questioned in a legislative budget and audit report of October 3,1997.

The surety fund has experienced minimal claim experience in the past few years (FY 91 - $67,260; FY 92 - $46,563; FY 93 - $98,063; FY ’94 - $36,268; FY ’95 - $24,995; FY ’96 - $48,390; and FY ’97 - $1,826). No claims have been paid yet in FY ’98; however, if all claims were processed at the amount claimed or the maximum amount allowed, the liability of the surety fund, as of March 1998, would be $103,769. The Real Estate Commission has pursued a policy of spending down the fund balance of "educational purposes". The licensees could not understand why the Real Estate Commission was increasing their fees and expending funds for education and newsletters which they deem to be of questionable value.

This legislation is intended to place any educational spending in the general fee structure and preserve the surety fund for consumer claims and fund administration.

Your support of this legislation would be appreciated.

ED1:3/29/98